Investment Strategy
1 minute read
U.S. equities are heading lower this week ahead of “Liberation Day” — the day the Trump Administration has said it will unveil its reciprocal tariff strategy.
U.S. consumers are not convinced about the prudence of the White House’s strategy. Consumer confidence fell to the lowest level in four years in March, largely due to concerns about higher prices and the economic outlook amid escalating trade policy uncertainty. Their expectations for the future also darkened. The expectations component of the index fell to the lowest level in 12 years. Equity investors looking for a silver lining should know that spikes in policy uncertainty and troughs in consumer sentiment counterintuitively augur stronger forward returns ahead. Sometimes, it really is darkest before the dawn.
Economic data this week also signaled some reprieve. The Citi U.S. Economic Surprise Index (which measures how economic data is coming in relative to economist expectations) has increased from -16.5 in February to -4.6 now. Indeed, it seems like “hard” measures of economic data are holding up much better than the “soft” data derived from people’s perceptions.
Until we hit first-quarter earnings season (JPMorgan announces in just two weeks), Washington will likely continue to dominate the debate. We are focused on two risks: tariffs and the Mar-a-Lago accord.
Trade uncertainty has reached the highest level on record and the White House could be looking for ways to weaken the dollar.
Here is our take on those risks.
This week President Trump offered a teaser to April 2nd by signing a proclamation to implement a 25% tariff on all auto imports, set to come into effect on April 3rd and expand to auto parts by May 3rd. The 25% tariff rate on vehicles covered by the US-Mexico-Canada trade agreement will only apply to the value of non-U.S. components.
There is little consensus over what the U.S. tariff regime may look like, raising the likelihood of market volatility and downside risks to U.S. and global growth. However, any sort of clarity on tariff policy may allow the market to move on to other risks.
A key observation for investors is that gold has outperformed the USD and S&P 500 by >6% across the 11 days dominated by tariff announcements this year. We continue to think gold has a valuable role to play in portfolios, alongside diversification across asset classes and geographies.
A paper by Stephen Miran, Chair of the White House Council of Economic Advisers, has raised some radical ideas as to how the administration could weaken the dollar.
The U.S. dollar is 6% above its 10-year average and 16% above its 20-year average valuation when measured against a basket of other major world currencies. A stronger dollar tends to lead to more imports (international goods are relatively cheaper for U.S. consumers) and less exports (U.S. goods are relatively more expensive for international buyers), which directly opposes the administrations goals of balancing trade and revitalizing domestic manufacturing. The administration has a stated goal to increase manufacturing domestically.
Miran’s paper focuses on two ideas:
The persistent overvaluation of the USD poses a challenge, but the “Mar-a-Lago Accord” and user fees on reserve assets carry substantial risks. Most notably, these measures could undermine the dollar’s reserve status and lead to much higher long-term interest rates, which are also contrary to the administration’s goals. Further, it seems unlikely that other economic policymakers would agree readily to a scheme to weaken the dollar like they did in the 1980s. Our view is that the accord is very unlikely.
We’ve highlighted several risks that are growing out of Washington. Investors should think about how they can position portfolios to help protect from those risks. We believe investors should stick to their strategic asset allocations, using equity exposure for long-term capital appreciation, and fixed income to hedge from growth scares. Additionally, we think tactically adding resilience (defined as income, diversification, and inflation protection) to portfolios through gold and real assets like infrastructure can help insulate portfolios from existing risks. Limiting the severity of drawdowns is critical to long-term investment success.
For questions as to how to best position your portfolio, reach out to your J.P. Morgan team.
All market and economic data as of March 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
Index Definitions:
VG1 Index: The Euro Stoxx 50 Future. The EURO STOXX 50 Index, Europe's leading blue-chip index for the Eurozone, provides a blue-chip representation of supersector leaders in the region. The index covers 50 stocks from 11 Eurozone countries.
LBUSTRUU Index: The Bloomberg USAgg Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
MXWOU Index: The MSCI World ex USA Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1969.
JHYRHYI Index: The J.P. Morgan High Yield Bond Index is a comprehensive, broad-based composite benchmark. It tracks U.S. Dollar, Euro, and Pound Sterling-denominated global corporate debt issuances across both Developed Markets (DM) and Emerging Markets (EM) debt segments. The benchmark index covers High-Yield (HY) debt issuances across Asia, Europe, Latin America, North America, and the Middle East & Africa regions. Daily historical returns and statistics have been available since December 31, 2012.
SPY US EQUITY: SPDR S&P 500 ETF Trust is an exchange-traded fund incorporated in the USA. The ETF tracks the S&P 500 Index. The Trust consists of a portfolio representing all 500 stocks in the S&P 500 Index. It holds predominantly large-cap U.S. stocks. This ETF is structured as a Unit Investment Trust and pays dividends on a quarterly basis. The holdings are weighted by market capitalization.
DXY Index: The U.S. Dollar Index (USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. The ICE US computes this by using the rates supplied by some 500 banks.
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